India recorded a fiscal deficit of 9.3% of GDP in 2020-21, 0.2% lower than the revised estimate of 9.5% of GDP, according to the Controller General of Accounts (CGA).
Total revenue receipts turned out to be about ₹88,000 crore higher than estimated, driven largely by higher excise and customs collections, while total expenditure was ₹61,000 crore more than the revised estimate. The revenue deficit for the year was projected at 7.42% of GDP by the CGA.
Economists stressed that the number could change if the revised GDP numbers for 2020-21 turn out to be different than the GDP of ₹194.82 lakh crore assumed in the Union Budget for this year. Budget 2020-21, presented before the COVID-19 lockdowns, had set a fiscal deficit target of 3.5% of GDP.
The slightly better than expected fiscal performance doesn’t necessarily bode well for this year’s fiscal pressures, despite the Reserve Bank of India’s significantly higher than expected dividend of ₹99,000-odd crore. The government has set a target to reduce the fiscal deficit this year to 6.8% of GDP.
CARE Ratings chief economist Madan Sabnavis pointed out that the higher than estimated expenditure in 2020-21 was actually driven by higher revenue expenditure of ₹75,000 crore. “Interestingly, capex was cut by ₹14,000 crore. Expenditure control will be important for 2021-22, as pressures will be there on tax revenue due to lockdowns, while non-tax receipts will be higher due to RBI transfer of ₹99,000 crore this year,” he said.
ICRA chief economist Aditi Nayar attributed the spurt in revenue spending to the release of food subsidies, but higher than anticipated tax revenues helped curtail the deficit to ₹18.2 lakh crore from the estimated ₹18.5 lakh crore.
“This will come as a relief to the bond markets… At this stage, there is a modest risk that the GoI’s fiscal deficit in FY2022 will be higher than budgeted (₹15.1 lakh crore), especially on account of shortfalls in disinvestment receipts, and higher-than budgeted expenditure. Accordingly, the space for a fiscal stimulus appears to be limited and would need to be carefully targeted,” she said.
The second wave of COVID-19, Ms Nayar said could delay some marquee disinvestment plans, which poses the biggest risk to the budgeted level of receipts this year.
While tax receipts would be affected due to the anticipation of a prolonged second wave impact on sentiment, the government may have to keep spending to prop up demand through a combination of free foodgrains, cash transfers and higher MGNREGA outlays, Ms Nayar said.
“Moreover, an eventual cut in cesses on fuels, which would dampen excise collections, can't be ruled out, given record-high retail fuel prices,” she said, adding that the Centre would also need to expedite vaccine availability.
